The seven mega-cap stocks Tesla, Meta Platforms, Amazon, Google parent Alphabet, NVIDIA, Apple, and Microsoft, also called the “Magnificent Seven”, already ensured hefty profits on the markets last year and will continue to do so in 2024 no break yet. The tech-heavy group is supported, on the one hand, by hopes of interest rate cuts by the US Federal Reserve, which has not yet made any interest rate changes this year but has promised a total of three interest rate cuts in 2024. The Swiss National Bank recently became the first central bank to abandon its strict monetary policy and, in a surprising move, lowered the key interest rate by 25 basis points to 1.5 percent.
On the other hand, the “Magnificent Seven” are benefiting from the AI boom, which has already kept investors on tenterhooks in 2023, but has not lost any of its power in 2024. The tech companies have opened up to the new technology surrounding generative artificial intelligence and large language models (LLMs) and are working on integrating these into their products or have already done so.
Microsoft with the highest stock market valuation
Against the background of the AI trend, a lot has already happened with the Mag 7 in terms of stock market valuation. For example, Microsoft has now replaced Apple as the most valuable company in the world. The computer manufacturer now has a market capitalization of more than three trillion US dollars. Apple follows with a market value of “only” $2.66 trillion. However, the one who has pushed particularly far ahead in the wake of the hype surrounding artificial intelligence is the chip designer NVIDIA. The company now has a market capitalization of $2.36 trillion and is stalking ever closer to the two tech giants. However, according to the news platform The Motley Fool, NVIDIA could become the most valuable Magnificent Seven stock by the end of this year.
NVIDIA stock with great potential
This is not only supported by the phenomenal stock market rally that NVIDIA has demonstrated over the last twelve months (+252.10 percent). The annual report for 2023 also made investors smile: the chip designer was able to triple its sales and profit growth also increased even faster than expected. The demand for NVIDIA’s AI chips and tech infrastructure offerings appears to be unbroken, so the company is likely to continue to secure market leadership in these areas, even if competition from AMD or Intel increases. However, NVIDIA CEO Jensen Huang recently appeared completely unimpressed by this in an interview with Standford University professor John Shoven and emphasized the great performance of its chips, which would beat those of the competition by far.
New products in store
In addition, the chip architecture does not rest on its successes but is continually working on new products. Huang recently presented the new generation of NVIDIA’s computer platform, which is called “Blackwell” and is intended to “drive a new industrial revolution” through AI, as was announced at its developer conference GTC.
On the way to new markets
Given the new product range and ongoing innovations, it is also quite conceivable that NVIDIA will also penetrate new markets in which the company is not yet active, argues The Motley Fool. NVIDIA announced in January that it would now also produce PC chips and could therefore establish itself in markets that are currently still in their infancy, such as the metaverse or autonomous driving. New use cases for NVIDIA technology certainly won’t be hard to find in an increasingly digital and AI-driven world.
NVIDIA itself also assumes this, as became clear in the latest figures. CEO Huang and CFO Colette Kress equally emphasized that the chip designer continues to assume that “demand will be greater than our supply.” Huang said in the earnings call: “With all the new products, demand is greater than supply. And that’s the nature of new products.”
Warning of risk of blisters
However, some voices see NVIDIA shares already in bubble territory after their strong run. For example, crisis prophet Jeremy Grantham, now claims to have identified an AI bubble within the tech super bubble, as he recently explained in a blog article.
However, JPMorgan strategist Mislav Matejka has a different opinion, as he writes in a note available to “Advisor Perspective”. “While the very strong outperformance of the Magnificent Seven is a cause for concern, we note that the group is currently trading less stretched given its earnings performance than it was a few years ago,” said the analyst.
UBS increases NVIDIA price target
The major Swiss bank UBS also recently increased its price target for NVIDIA shares. The bank now sees the share price rising to $1,100 after the previous target was only $800. The financial institution also reiterated its buy recommendation. According to UBS analyst Timothy Arcuri, the chip designer is facing a whole new wave of demand from global companies and countries.
Still room for improvement
The Motley Fool also argues that NVIDIA is being even more underestimated by Wall Street. This was evident in the last four quarters when the chip company managed to beat the market’s already high expectations each time. It is also likely that the current EPS estimate of $24.50 is still too low given the strong tailwind that the company is currently experiencing. NVIDIA shares would still have to continue to rise in double digits if they wanted to catch up with Microsoft’s market capitalization. However, given the dominance of artificial intelligence over other companies, this is certainly within the realm of possibility, says author Jeremy Bowman. As long as the need for AI and the necessary components continues to increase, so should NVIDIA stock. However, it remains to be seen whether Bowman will be right.